2021 (10) TMI 222 - AT - Income Tax

Disallowance of interest expenditure - Re-shuffling of loan portfolio - Assessee taken loans from Yes Bank Ltd. in earlier years and the same was repaid by borrowing money from a related concern - CIT-A deleted the addition - HELD THAT - The present loan taken from Standard Chartered Investment Loans India Ltd. has been used to repay the loan taken from Coffee Day Hotels Resorts Pvt. Ltd. These facts show that the assessee was only reshuffling its loan portfolio by changing the lenders, i.e., it is not a case, where the assessee has diverted interest bearing funds to its related concerns, as presumed by the A.O. If that be so, then the amount diverted to related concern should have found place in the assets side of the Balance Sheet. We notice that the Ld. CIT(A) has given a clear finding that the asset side of the balance sheet contains only business assets. - Decided against revenue.

Summary

Issues:
Challenge to deletion of interest expenditure disallowance by Ld. CIT(A) for assessment year 2015-16.

Analysis:
The revenue filed an appeal challenging the order passed by Ld. CIT(A) regarding the disallowance of interest expenditure of ?5.75 crores for the assessment year 2015-16. The A.O. disallowed the interest expenditure after noting that the assessee had borrowed ?55 crores from Standard Chartered Investment and Loans India Ltd. and paid interest on it. The assessee explained that the borrowed amount was used to repay loans from a related concern and was utilized for business purposes only. However, the A.O. was not convinced and disallowed the entire interest claim. The Ld. CIT(A) disagreed with the A.O. and deleted the disallowance, leading to the revenue's appeal.

The Ld. D.R. supported the A.O.'s decision, arguing that the loan from Standard Chartered was not used for business purposes as it was used to pay another related concern. The assessee's written submissions clarified the loan transactions and how the borrowed amounts were utilized for repayment of loans taken from related parties. The appellant contended that the interest expenditure was allowable as it was used for legitimate business purposes. The Ld. CIT(A) observed that the disallowed amount included bank charges and that the assessee's balance sheet only contained assets used for business. It was noted that the loans were reshuffled between lenders without diverting funds to related concerns, as alleged by the A.O.

After considering the submissions and facts, the Tribunal upheld the decision of Ld. CIT(A) and dismissed the revenue's appeal. The Tribunal found no reason to interfere with the Ld. CIT(A)'s conclusion that the interest expenditure was allowable as it was utilized for legitimate business purposes.